How to buy a property in Australia as a foreigner

By Gerv Tacadena
28 Aug 2018

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There is no denying the fact that Australia is the place to be if you want the best of culture, lifestyle, and even investments. The land down under remains to be one of the world's easiest places to do business, recently placing 14th of the 190 countries in the annual ranking by the World Bank.

It is no different story when it comes to real estate – in fact, Australia's property market witnessed a frenzy a few years ago, as investors flocked to the highly-valued cities for property investments. However, foreign residential real estate approvals started to dwindle over the recent years, on account of tighter regulations and slowing property prices. This does not mean investors should hold back, given that the current slowdown is but a phase the market has to undergo as it moves through the property cycle.

If you are a foreigner and you are planning to buy a piece of real estate in Australia, there are certain rules and regulations that you have to understand to ensure a smooth process. While the process might seem tricky to navigate, it is actually very understandable once you get a good grasp of the foreign investment framework the government uses in approving applications.

What type of properties can foreigners purchase?
As a general rule, foreigners are only allowed to purchase new properties, rather than established ones. Prior to the purchase, you must be able to secure an approval from the Foreign Investment Review Board (FIRB), which is responsible for ensuring that foreign investments are beneficial to Australia's economy. This explains the logic behind forcing foreigners to purchase new dwellings, as this adds to the current housing stock.

A new dwelling is a property that has been established on a residential land and has not been previously sold. As such, it should never have been occupied nor have been part of a property that has been renovated.

Let's assume that you want to buy a recently built dwelling sitting on a piece of land where a previous dwelling once stood. The owner of the new property has yet to occupy the new dwelling and you are going to be the first buyer if the sale goes through.

In this scenario, you would not be allowed to purchase the property, as the new dwelling does not really add up to the existing housing stock. The dwelling, even if newly-built, will not be considered a new home under Australia's foreign investment framework.

Foreigners can also purchase a vacant land, provided that they can complete the development of a residential property within four years since the approval from the board. However, if a vacant land had previously cradled a dwelling, then foreigners will not be allowed to purchase that asset.

There is a workaround to this: a foreigner interested in a previously-occupied land can propose building multiple dwellings. This way, it will contribute to the existing housing stock and will be compliant with the foreign investment framework.

Are there fees associated with applying for approval?
The application for approval to purchase a residential property entails fees which depend on the price of the property. For a residential land with a price of below $1m, the fee payable is $5,600. You can find the complete fee schedule here.

There are different payment options available for investors including direct credit, transfer from overseas bank account, government EasyPay, and BPay. When paying, you have to make sure that the currency is in Australian dollars.

How can a foreigner apply for approval?
Take note: approval must come before a property purchase. The Australian Taxation Office provides a foreign investment application form on its website.

Using the ATO website, go to the application page and carefully supply all the required details. You will have to complete and submit all the details and attachments in one go, so make sure that every information you need is ready to avoid delays and setbacks. Changing your details, especially after your application has already been submitted, may result in additional costs. Worse, you might be asked to seek a new approval.

Within 30 days, your application will have either been approved or denied. You will get a go signal within 10 days after the board gives its decision.

What are the penalties in place for non-compliant foreign investors?
Foreign investment laws have teeth, and those who do not subscribe to the guidelines set forth by the federal government face penalties and possible jail time. Just to give you an idea: a foreigner who purchases a property without seeking approval from FIRB can be fined up to $135,000, or face a three-year imprisonment. In the worst case, the buyer can be subject to both. Any property agents involved will also face strict penalties.

What are some lending restrictions in place for foreign investors?
There have been several changes in how banks and lenders deal with foreign investors. Big banks like ANZ and Westpac, for instance, have discontinued issuing loans to non-residents while National Australian Bank inflated its maximum loan-to-valuation ratio requirement for foreigners to 60%. However, there are a plethora of lenders and other financial players offering competitive home loan products.

Do the same rules apply to temporary residents?
Temporary residents are allowed to buy established dwellings provided they are only using it for their own use (i.e. not as an investment property). For new dwellings, temporary residents are not required to meet any conditions to be approved.

However, just like foreign investors, temporary residents are not given the freedom to purchase an established dwelling as an investment.

What are the rules for Australian residents living abroad?
The foreign investment rules do not apply to Australians living in other countries as they are exempt from applying for FIRB approval. However, you have to check out if you will be able to apply for a local home loan. Other things to look into are legal and tax concerns regarding your use of foreign income in your property investment. To ensure that you will not be in violation of any regulations, be sure to seek help from professionals.